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2 3 1. 4 5 6 7 8 9 a. 10 11 12 13 14 You are a market maker in various bank stocks and have a $50 million position in a stock that currently is priced at $25 per share. You wish to delta hedge this position using call options. The delta on a call option underlying this stock is .65 today and each call option contract is on 200 shares of the stock. The current price of the option is $2. 20 21 22 23 24 25 26 27 28 C. 29 30 31 In order to offset this position, how many call options would be required? 15 16 17 18 b. What would you expect the price of the call option to be based on the information provided? 19 Would you expect this result to be reasonable? A full explanation to support your answer is required. 2 3 1. 4 5 6 7 8 9 a. 10 11 12 13 14 You are a market maker in various bank stocks and have a $50 million position in a stock that currently is priced at $25 per share. You wish to delta hedge this position using call options. The delta on a call option underlying this stock is .65 today and each call option contract is on 200 shares of the stock. The current price of the option is $2. 20 21 22 23 24 25 26 27 28 C. 29 30 31 In order to offset this position, how many call options would be required? 15 16 17 18 b. What would you expect the price of the call option to be based on the information provided? 19 Would you expect this result to be reasonable? A full explanation to support your answer is required.
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To delta hedge the 50 million position in the stock we need to calculate the number of call options ... View the full answer
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